Deposit market concentration and monetary transmission: evidence from the euro area

Stephen Kho

No 2896, Working Paper Series from European Central Bank

Abstract: I study the transmission of monetary policy to deposit rates in the euro area with a focus on asymmetries and the role of banking sector concentration. Using a local projections framework with 2003-2023 country-level and bank-level data for thirteen euro area member states, I find that deposit rates respond symmetrically to an unexpected tightening or easing of monetary policy. However, more concentrated domestic banking sectors do pass-on unexpected monetary tightening (easing) more slowly (quickly) than less concentrated banking sectors, which contributes to a temporary divergence of deposit rates across the euro area. These results suggest that heterogeneity in the degree of banking sector concentration matters for the transmission of monetary policy to deposit rates, which in turn may affect banking sector profitability. JEL Classification: D40, E43, E52, G21

Keywords: banking sector; deposit rates; market power; monetary policy (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-com, nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242896

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